Self-employed workers across the UK are facing a tax hike, after Philip Hammond announced he will do away with lower national insurance payments for freelancers.
From April 2018, the main rate of class 4 national insurance contributions for the self-employed will increase by one per cent to 10 per cent, with a further one per cent increase in April 2019.
The Treasury said this would "reduce the gap in rates paid by the self-employed and employees, and reflect the introduction of the new State Pension to which the self-employed have the same access".
Hammond said there had been a recent "dramatic increase" in the number of people working on a self-employed basis, and said: "I will always support the entrepreneurs and innovators who are the lifeblood of the UK economy."
However, he added that differences in the amount of national insurance paid paid by self-employed and employed people undermined the fairness of the UK tax system.
Although commentators said the hike to NICs went against the Tories' 2015 manifesto pledge against raising taxes, the Conservative party press office said on Twitter that the tax lock applied to rates of class 1 NICs, not class 4.
Our tax lock ensured rates of Class 1 NICs wouldn’t rise, enshrining manifesto promise (1/2)— CCHQ Press Office (@CCHQPress) March 8, 2017
Today’s announcement concerns Class 4 NICs, not Class 1, & makes system fairer (2/2) #Budget2017— CCHQ Press Office (@CCHQPress) March 8, 2017
“Increasing National Insurance rates for the self-employed could be a further step by the government to penalise those who are taking risks and starting a business, often giving up their regular pay cheques to take a chance at creating something great," said Lucy-Rose Walker, chief executive at Entrepreneurial Spark.
"We believe there should be more, not less, support for entrepreneurs who are starting and scaling businesses. Removing the few remaining incentives of being self-employed is counter-intuitive and will lead to fewer enterprises and consequently fewer jobs."
Meanwhile, Barnaby Lashbrooke, founder of virtual assistant platform Time Etc, said: "Instead of preserving Britain's culture of entrepreneurialism, Mr Hammond has instead imposed heavier NICs on the self employed, who don't get the luxury of paid annual leave, employer pension contributions or enhanced parental leave pay, and must support themselves through periods of no work.
"For those reasons alone, self-employed workers should not be expected to contribute the same as employees."
He added: "The rise in self-employment has little to do with tax avoidance. It's partly the result of a skills shortage – talent is in high demand – as well as advancements in technology that have enabled the sharing economy."
Hammond also said today that the government will consider whether there is a case for greater parity in parental benefits between the employed and self-employed, as well as taking into account Matthew Taylor's review of the UK's employment law.